FLSA Overtime Rate Calculation in Variable Rate Situations

What is the Fair Labor Standards Act?

FLSA or the Fair Labor Standards Act are a set of laws and regulations designed to protect workers from being exploited. The regulations can be quite complex so we are going to focus on one situation - properly calculating the overtime rate in situations where your employees are paid different rates during the week. 

The first time I came across this challenge was a customer who ran a valet service in southern Florida. As you may imagine, the greatest demand for valet services occurs on Friday and Saturday nights. It is also very difficult to staff weekend nights. So valet companies pay a significantly greater hourly rate on Friday and Saturday. As it is also the end of the work week, this is also when the majority of their overtime occurs. 

The challenge is that if the company pays overtime based on the Friday and Saturday rates which are inflated due to demand, the company's overtime costs would be far greater than if the overtime rate was based on the hourly rate used for the rest of the week.  

FLSA has regulations and rulings that permit the calculation of the average rate for all work performed during the week and use that rate to calculate overtime compensation. Since overtime pay will be calculated based on the average rate for the week it is called an overtime premium. Let’s use the example of the valet company to explain how this works. 

FLSA Overtime Premium Calculation Example

• The base rate for a valet is $13.75/hr
• Valets are paid $25.00/hr for premium shifts like Friday and Saturday night
• This week the employee works 30 hours Monday - Thursday
• They work 15 hours on Friday and Saturday night
• Total hours worked for the week is 45 hours
• 40 regular hours and 5 overtime hours on Saturday night

To calculate the FLSA overtime we start by calculating the pay without overtime added for all 45 hours:

• 30 hours (Mon-Thu) X $13.75/hr = $412.50
• 15 hours (Fri - Sat) X $25.00/hr = $375.00
• Total of wages without overtime = $787.50
• The average hourly rate for the week = $787.50/45 hours or $17.5/hr
• The overtime premium is therefore ½ the average hourly rate time the number of overtime hours or $17.5 X 5 hrs  X .5 = $43.75
• The valet’s total compensation for the week is therefore $831.25

Let’s compare that with the compensation if the overtime was calculated based on the rate paid when the overtime occurred. 

Overtime Calculation without Adjustment

• 30 hours (Mon-Thu) X $13.75/hr = $412.50
• 10 hours premium shift pay (Fri - Sat) X $25.00/hr = $250.00
• 5 hours premium shift overtime pay (Fri - Sat) X $25.00/hr X 1.5 overtime rate = $187.50
• Total compensation = $412.50 + $250.00 + $187.50 = $850.00

In this example, the difference in pay between using the FLSA overtime premium and calculating pay based on the rate when the overtime occurs is $18.75. While that does not seem like a large difference it can add up quickly. $18.75/week for an entire year totals $975 per employee. In some situations like prevailing wage, the difference between the base rate and the premium rate during the week can be much greater. The greater the difference the more significant the impact on labor costs. 

Applying FLSA overtime rules can be complex and requires consistent, error-free implementation to ensure compliance. Many companies rely on manual spreadsheets for these calculations, but this approach is labor-intensive and prone to errors.

How Dapt Solves This Challenge

• Automate FLSA-compliant calculations by connecting time-tracking systems with payroll processing.
• Eliminate manual errors and save valuable time by avoiding complex hand-calculated spreadsheets.
• Ensure compliance with a systematic, auditable payroll process.

Dapt simplifies this process by automating the connection between time tracking and payroll systems, ensuring accurate and auditable application of these rules. However, we recommend consulting with legal or HR compliance experts for specific regulatory guidance tailored to your business needs.

Are you ready to streamline your payroll? Learn how Dapt simplifies FSLA Overtime Rate Calculations in complex variable rate situations - Contact Us Today!

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